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Donations and the "Tax Cuts and Jobs Act of 2017"

By James E. Dunning, Jr., CPA

 

ALVA, Okla. (Jan. 31, 2018) - A hot topic of late is the “Tax Cuts and Jobs Act of 2017”, sometimes referred to as the new tax reform law. There is not enough space here to share what all of it means; the actual bill is 1,097 pages in length. If you have trouble sleeping at night, Google this topic, begin reading, insomnia solved.Jim Dunning

 

As alumni, friends and supporters of Northwestern, it seems appropriate to focus on topics that are related to giving and to education. Education is the easy part as, for the most part, it is unchanged. The Lifetime Learning Credit and Student Loan Interest Deduction are still in place; the exclusion for graduate school tuition waivers is unchanged. The 529 college savings plan was expanded to include more than just college-level education, which may be important to those choosing private elementary or secondary schools.

 

Charitable contributions are a topic of concern to non-profits and donors alike. The only real change to this tax provision is that taxpayers may now deduct up to 60 percent of their adjusted gross income if given to charity, up from 50 percent previously allowed. If one exceeds that amount, it may be carried forward to future tax years. The concern for non-profits is that the standard deduction is increased from the current amount of $12,700 for a married couple to $24,000. The concern is that taxpayers who no longer itemize because of the increased standard deduction will stop giving because of the lost tax benefit. I believe this fear is unfounded.

 

I believe we give because we support the cause and efforts of the organization to which we are giving.  Yes, a gift to NWOSU may help reduce taxes, but the reason we give is to support student scholarships, to support campus improvements which improve the student experience, to give back and to help. We give to our church because that is what we believe, not because it is a tax deduction. The same is true of Scouts, 4-H and many other great organizations. Yes, the tax break is nice – but that is not our why.

 

Our office prepared more than 2,600 individual tax returns for 2016. Of those returns, 1,140 (43 percent) itemized deductions. A total of 1,406 (53 percent) recorded donations made at some level.  This information shows that another 10 percent – or more – of our donors did so without any tax benefit. I also know that we have many clients who will not itemize so we did not record this information. However, I promise you they made donations.

 

The other part of the equation that has not yet been thoroughly discussed is that tax rates are reduced and the tax brackets are larger. This means if your income is similar, your effective tax rate will likely decrease.  In a prior article (May 2017), I shared my bucket theory of taxes: the buckets got bigger and the tax percentage went down.

 

I have told clients and friends many times in my 30-plus years of practice that I have yet to find anything I would do just for tax purposes. This tax reform does not change my opinion on this matter.

 

I encourage you to continue giving like you have been giving; and if you can, give a little more.  Give because you believe. Give because you support. Give to encourage. Give to help. Keep good records and at the end of the year it might save you some money. I am willing to bet that is not why you made the donation.

 

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